As James Henry states in his study The Price of Offshore Revisited written for the Tax Justice Network, “Since the late 1970s, investigative journalists, tax authorities, drug enforcement officials, terrorist trackers, and national security experts – and a few economists – have gradually become aware that there is indeed a vast deal of money – a large and growing chunk of the world’s private wealth and income – hidden out there, not so much in the land – but offshore, protected by a highly paid, industrious bevy of professional enablers in the private banking, legal, accounting, and investment industries, taking advantage of the increasingly borderless, frictionless global economy.”
We have, of course, closely followed the efforts of the United States and United Kingdom tax authorities in tracking offshore accounts, especially in the US since the 2009 indictment of UBS and the various offshore voluntary disclosure programs that have come in its wake, and in the UK since the announcement of the LDF also in 2009. But the story today is that an unprecedented leak of documents is revealing the offshore investment information of more than 100,000 people around the world. This leak comes not from government efforts but through the Washington, D.C. based International Consortium of Investigative Journalists (ICIJ) which received records detailing the offshore holdings of individuals and companies in more than 170 countries and territories.
The leaked documents represent “….the biggest stockpile of inside information about the offshore system ever obtained by a media organization.” To analyze the documents, ICIJ collaborated with reporters from The Guardian and the BBC in the U.K., Le Monde in France, Süddeutsche Zeitung and Norddeutscher Rundfunk in Germany, The Washington Post, the Canadian Broadcasting Corporation (CBC) and 31 other media partners around the world. Eighty-six journalists from 46 countries used high-tech data crunching and shoe-leather reporting to sift through emails, account ledgers and other files covering nearly 30 years.” (See ICIJ’s Secret Files Expose Offshore’s Global Impact)
It is our understanding that national papers will start publishing lists of account holders, for example Le Monde has already published names of certain prominent French offshore account holders based on the Offshore Leaks data as French politics are currently being rocked by the Jerome Cahuzac scandal. But along with the French account holders, a Canadian Senator, Mongolian Parliamentarian, Thai Minister, and a number of wealthy entrepreneurs and old-money socialites have already been named; and the disclosures are sure to grow in the coming weeks.
From a US standpoint, these leaks are sure to embolden the IRS and we expect that Agents in its Criminal Investigation division as well as lawyers from the Justice Department will be busy following on the leads provided. The IRS is, of course, very aware of various offshore structures and runs an Abusive Tax Scheme Program focused on taxpayers who “exploit secrecy laws of offshore jurisdictions in an attempt to conceal assets and income subject to tax by the United States.”
We want to remind US taxpayers that the IRS has promoted the “voluntary disclosure” of non-compliant US taxpayers by encouraging them to file ”truthful, timely, and complete” tax returns, pay any taxes due and generally bring themselves into tax compliance. A taxpayer’s voluntary disclosure is a “factor” to be considered by the IRS when deciding whether a taxpayer should be recommended to the Department of Justice for criminal prosecution, and historically very few taxpayers who voluntarily disclosed have been criminally prosecuted.
Under IRS voluntary disclosure practice, a disclosure is timely if it is received before:
- The IRS has initiated a civil examination or criminal investigation of the taxpayer, or has notified the taxpayer that it intends to commence such an examination or investigation.
- The IRS has received information from a third party (e.g., informant, other governmental agency, or the media) alerting the IRS to the specific taxpayer’s noncompliance.
- The IRS has initiated a civil examination or criminal investigation which is directly related to the specific liability of the taxpayer.
- The IRS has acquired information directly related to the specific liability of the taxpayer from a criminal enforcement action (e.g., search warrant, grand jury subpoena)
Like the governments and tax authorities in many countries, the IRS and HMRC will obviously be looking at the ICIJ data and we certainly expect to see a new wave of investigations and indictments coming from these “Offshore Leaks.”
Source: The Price of Offshore Revisited written for the Tax Justice Network